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Wednesday, 28 August 2013 23:50

New Grand Rapids brewery builds off co-op structure

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Founders of the High Five Co-Op Brewery want to apply a familiar agricultural business model — the cooperative — to the realm of making beer. Having secured its nonprofit incorporation, the group must now work with the Michigan Liquor Control Commission to iron out the process of vetting the people who buy membership certificates in the cooperative. Founders of the High Five Co-Op Brewery want to apply a familiar agricultural business model — the cooperative — to the realm of making beer. Having secured its nonprofit incorporation, the group must now work with the Michigan Liquor Control Commission to iron out the process of vetting the people who buy membership certificates in the cooperative. COURTESY PHOTO

The whole state of Michigan seems to be bursting at the seams with startup breweries, each with missions of locally sourced ingredients and sustainability.

While those ideals are at the heart of a new startup brewery in West Michigan, the company is taking its business model one step further by becoming a cooperative.

High Five Co-Op Brewery says it plans to distinguish itself with the quality of its brews, but it’s the company’s business model that differentiates it from other breweries in Michigan — and all but one other brewery in the country.

The company is organizing itself around a model frequently practiced in rural agriculture, a system under which farmers would pool their resources to benefit their region. As a nonprofit organization, cooperatives place emphasis on fairness, democracy and doing good, while aiming to at least break even.

“(High Five seeks to) truly empower their employees by giving them a vote, paying them far better than the rest of the industry and providing for their health care. How many other breweries can honestly say that?” said Jorel Van Os, vice president of the elected decision-making board that governs High Five. “We don’t have to compromise when it comes to making great beer and treating our employees right because we don’t have to worry about appeasing wealthy investors or banks.”

The co-op has been working to get off the ground since 2011 when one of the founders, Dallas McCulloch, was awarded a $5,000 grant at 5x5 Night, one of social entrepreneur Rick DeVos’ programs that preceded Start Garden. Since then, High Five has been spreading the word, raising some capital — albeit slowly — and getting its unorthodox model, particularly in the alcohol industry, to be recognized by the state.

High Five is now fully incorporated in Michigan as a domestic nonprofit corporation and has in place its bylaws — more than 40 pages worth — which detail most any circumstance that could arise for the company.

Van Os told MiBiz that the co-op is now legally cleared to begin selling ownership stakes in the brewery, or what board members are calling “membership certificates.” These certificates will cost $150 and will come with many of the same perks as a traditional craft brewery’s mug club — plus a voice in deciding how the co-op runs its operations. In theory at least, the company could offer an unlimited number of membership certificates. The co-op could also return to existing members for additional funds.

The current nine members of the board of directors working to get the brewery up and running are not expecting to see any significant compensation for their work, Van Os said. Once the co-op’s brewery is open, board members will be paid the rate that employees are paid for whatever work they do, he said.

“I’ve always wanted to start a brewery. This is my chance. But not only that, we can all own a brewery,” Van Os said.

He said that over time, High Five hopes to have 3,000 member-owners.

The bureaucratic hurdle left remaining is that each person who signs up for a membership certificate will need at least some sort of clearance through the Michigan Liquor Control Commission (MLCC).

This approval process could be quite the task, says Grand Rapids attorney Joseph Infante, who heads Miller Canfield’s alcoholic beverage regulation team.

“I imagine it will be really slow,” Infante said of the process to clear potentially thousands of people for partial ownership in an alcohol-producing business. “(High Five will) have to be really good at paperwork and organization.”

High Five is based on a model pioneered by Black Star Co-op Pub and Brewery in Austin, Texas. Black Star is the only other cooperative brewery in the United States.

The Texas brewery, with its 3,100 member-owners, produced 650 barrels of beer last year and had just over $1.8 million in revenue, said Black Star business team member Dana Curtis in an email to MiBiz. Curtis said Black Star, which opened in September 2010, had a net profit in its first year and is considering opening a second location.

Because of differences in state law, the member-owners at Black Star did not have to have full background checks by the Texas Alcoholic Beverage Commission. Only those on the board of directors or people who gave additional money beyond the standard fee for membership were subject to background checks.

Van Os said that High Five’s communication with the MLCC has been limited, and they remain unsure what the agency’s exact requirements will be.

While the founders acknowledge there are easier ways to start a brewery and while some uncertainty remains — the group need to clear a funding hurdle in the “hundreds of thousands” of dollars and to select a location — Van Os and the rest of the High Five board appear confident that their mission will be fulfilled. He said he is excited for the time that the regulars at the brewpub will also be the people making the decisions about the operation.

“The people drinking the beer very often are going to be the people electing the management. There is an annual meeting in which everyone gets to have a voice, vote on certain things and also elect board members,” Van Os said. “These empowering things mean you really are heard from because you are an owner of the brewery.”

To help facilitate the necessary raising of capital, High Five is holding a number of gatherings at West Michigan-area breweries where they will have guest spots on the host’s tap list. The people who show up will be able to sign up for a membership at the gathering. The first event is set for Sept. 9 at Grand Rapids’ Harmony Brewing Co. The backers anticipate using that capital to help finalize a location.

“Breweries take hundreds of thousands of dollars to start. We anticipate raising hundreds of thousands of dollars,” Van Os said. “We will always need the money, but we especially need the money before we sell that first pint.”

However, even though High Five hopes to be known for its principles, the group also wants to stake its reputation on the quality of its beer, Van Os said.

“Everything the brewing committee got together has been the highest quality beer you can get. I expect us to be considered one of the better new breweries in the state right away,” Van Os said. “But we have the quality where … people are going to take notice right away. I can definitely see that happening.”

Full disclosure: The reporter for this story is roommates with High Five Vice President Jorel Van Os, but is not involved with the company.

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EDITOR’S NOTE: This story has been changed from its original version to correct the spelling of Dallas McCulloch’s last name.

Read 103545 times Last modified on Wednesday, 02 April 2014 13:48

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